Manufacturers’ Expectations for 2016 Budget

By Phyllis Wakiaga

As the budget is read this week, there are four things I would like to point out which we wish to see tackled in the 2016 budget. If addressed, these issues could take manufacturing a long way forward.

The first is the key issue of VAT refunds which has dogged us for years. Pending VAT refunds affect the financial liquidity of manufacturing firms and our manufacturers are forced to resort to debt in order to survive. With the high cost of credit, which we hope will come down soon, this makes the position of local manufacturers untenable.

The Government recently gave figures which totaled the backlog as at December 2013 to 19.2 billion of verified claims with another 11.2 billion in pending claims. Only 2.3 billion had been paid out. This position has probably changed but as the situation currently stands, 78 per cent of claims are outstanding past the 30 day repayment period.

We need more transparency and reporting from the government on the status of refunds and the introduction of a new system to refund claims within 30 days. In addition, the government should recognise VAT refunds as monies owed to private sector and make an annual allowance in each budget reading to repay the debt. The new refund system to be introduced should be benchmarked to other nations like South Africa. We acknowledge that such a system would take time to put in place but it would eventually take away this headache from us.

The second cause of concern is the Import declaration fee (IDF). In last year’s budget, the fee was reduced from 2.25 per cent to 2 per cent of the Cost Insurance and Freight (CIF) value. This measure has not been implemented to date. During the budget reading, we would like to see it completely eliminated for raw materials both for local consumption and for exports. We have repeatedly argued that with the introduction of Pre-Export Verification of Conformity (PVOC), IDF is redundant. In other EAC partner states, this fee either does not exist or is a negligible percent. I hope that the 2016 budget will do away with the IDF fee for the sake of our export competitiveness.
Thirdly, we have the Railway Development Levy (RDL) which currently stands at 1.5 per cent of the CIF value. At its conception, the fee was meant to last for a period of four years. Treasury also had a very fixed amount that it hoped to raise from this fee for the building of the Standard Gauge Railway. Collections from the levy have since surpassed this figure. The extension of these levy to an unknown date in the future is harmful to our exports and manufacturers have requested at least for the removal of the fee on raw materials for export goods in the short term and on all imports in 3 years time.

Excise is the fourth issue which has hit beverage manufacturers in particular, ver hard. Excise tax tends to be distortionary by nature and the introduction of higher excise taxes has already began to affect the sales of non alcoholic beverages in the country. We also expect to see the total elimination of excise tax for bottled water and fruit juices and a reduction of excise duty for carbonated soft drinks, alcoholic drinks, motor vehicles cigarettes and plastic shopping bags. We would also like to see a workable solution for the implementation of the Excise Goods Management System for non alcoholic beverages so that it is cost free. The stamp duty of ksh 1.50 per Store Keeping Unit should be done away with.

There are, definitely, some positive expectations for each of the different sub-sectors but the ones mentioned above affect all manufacturers. If the budget tackles these four key issues, we are assured of local industry taking a huge leap forward because we will have addressed the major issue of our export competitiveness which is currently at stake.

The writer is the CEO of the Kenya Association of Manufacturers and the UN Global Compact Network Representative for Kenya. She can be reached on ceo@kam.co.ke.

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